Stock Analysis and Outlook - Subhash Projects & Marketing Ltd.

I received several mails and comments with readers asking for suggestions on some quality mid-cap stock picks. I will be discussing in details five mid-cap stock picks for investors. In my opinion these stocks would be value creators in the long run. As a first part of this series of posts, I will be discussing the future outlook for Subhash Projects and Marketing Limited in this article.

Company: Subhash Projects and Marketing Ltd.

Industry: Infrastructure with a special focus on water infrastructure

CMP and PE Ratio: INR 152.60 with a PE Ratio of 10.52

Key Areas of Business Operation for Subhash Projects

Subhash Projects One Year Stock Price Movement Vs. Nifty Index

Financial Health Analysis:

• As evident from the numbers above, the key income statement parameters have shown robust growth in the last four years for Subhash Projects. The Company clocked decent revenue growth even in the most difficult periods for the global economy.
  

• Subhash Projects has also been able to significantly improve on its margins. The operating profit margin for the Company has increased from 7.4% in March 2005 to 16.7% in March 2009. The adjusted net profit margin during the same period has improved from 1.25% to 4.91%.
  

• As of 31st March 2009, the Company had a Debt Equity ratio of 1.2. Considering the capital intensive nature of business and the fact that Subhash Projects bottomline has been robust, the debt is at a very managable level and the Company can leverage itself further in case of project funding requirements.
  

• On the asset utilization and management efficiency front, Subhash Projects has done exceedingly well in the last four years. The ROE for the Company has increased from 5.6% in 2005 to 16.1% in 2009. During the same period, the ROA for the Company has increased from 3.0% to 6.6%. Thus, Subhash Projects management has been able to utilize its capital and assets more efficiently over this period of time. This is indicative of management efficiency.

Future Revenue Growth Drivers for Subhash Projects:

The last few years for Subhash Projects might have been great. But it is very important to figure out the factors that will trigger its future revenue growth. These revenue growth triggers would act as tirggers for stock price appreciation as well.

• Avaliability of pure drinking water for Rural India and to some extent even Urban India is one of the biggest challenges faced by the country at present. The water infrastructure in India is still very poor and the Government has realised this challenge which might be a road block to the growth of the nation. This challenge presents a huge opportunity for Subhash Projects which is specalized in water infrastructure and has already work on several state and central Government projects. In my opinion, regular projects in this area will not only give clear revenue visibility but will also prop up the stock price.
  

• The avaliability of Power in Urban and Rural India is also one of the biggest challenges and road block to economic growth in India. Subhash Projects is well placed to benefit from the growth in the power sector which is a necessity. The private sector participation in Indian Power Sector is just 13.5%. As the Government tries to make policies more liberal, increased private participation will be seen and Subhash Projects stands to benefit from the same.
  

• Another area of high growth and high potential for the Company is the solid waste management, water waste management and sewer rehabilitation. The Company has an early mover advantage in these areas and these areas should be major revenue drivers for the Company in the future. Greater industrilization will lead to greater need for waste water management and solid waste management. The Company is well placed to capatalize on this high growth opportunity.
  

• Subhash Projects has also recently forayed into coal mining business. In India, 64.6% of Power generation is through thermal sources. Of this 53.3% of power generation is from Coal. As the demand for power increases, the requirement for coal will also increase. This initiative will not only help Subhash Projects utilize coal for its power projects but also sell coal to other entities.

Overall, Subhash Projects is catering to areas which are the greatest challenges and which India must overcome in order to see subtainable and high economic growth. These big challenges have presented big opportunities to Subhash Projects. Going by the past record, the management looks efficient enough to capitalize on these opportunities.

Peer Analysis for Subhash Projects and Marketing Ltd.

As the table above shows, Subhash Projects and Marketing is relatively undervalued as compared to its peers. This gives investors an attractive opportunity to consider exposure to this stock.

Conclusion:

Subhash Projects promises to be a multibagger in the long term. The stock price for the Company has gone up nearly four times since March 2009. Thus, it would not be surprising if the stock corrects from these levels. But the stock gives an excellent opportunity for long term investors to consider exposure for good capital gains.

Disclosure:

No positions currently in the stock.

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